Stocks Pop Then Drop After FOMC

The price action on Wall Street was disheartening for the bulls on Wednesday. Despite extremely dovish commentary from the Federal Reserve in its FOMC statement from the Decemeber meeting, equity prices closed the day largely lower. In its statement, the Federal Open Marke Committee said that it will engage in yet another round of quantitative easing when Operation Twist ends at the beginning of the year.

Specifically, the central bank will continue buying $45 billion per month in Treasury bonds and $40 billion per month in mortgage-backed securities, but it won't be offsetting the purchases with sales of shorter-term Treasury debt as it had done under Operation Twist.

Even more importantly, the Fed changed its language regarding interest rate policy. The central bank said that it will now hold the fed funds rate near zero until unemployment falls below 6.5 percent or the inflation rate rises above 2.5 percent. This open-ended language is unprecedented and replaces the Fed's previous guidance which suggested that rates would reamain exceptionally low until at least mid-2015.

In the immediate aftermath of the FOMC statement, stock and commodity markets began to rise. Given the highly accommodative language contained in the statement, this was not a surprise. The rally, however, was short-lived and prices fell into the closing bell.

Some investors will undoubtedly be concerned about the inability of the market to rise in the wake of the very dovish commentary and policy action from the Fed. At the close of trading, the Dow Jones Industrial Average had shed 3 points to 13,245. The widey watched blue-chip index traded in a range between 13,227 and 13,329.

The SPDR S&P 500 ETF (SPY) posted a gain of 0.05 percent to $143.51, but finished well off of its highs for the day. Volume was a little heavier than normal with around 144 million SPY shares trading hands compared to a 3-month daily average of 134.6 million.

The PowerShares QQQ Trust ETF (QQQ), which tracks the performance of the Nasdaq 100, fell 0.21 percent to close at $65.83. Heading into the end of the year, the QQQ has managed to gain almost 18 percent in 2012.

Crude oil rose on the day. NYMEX crude futures, the U.S. benchmark, had added 1.11 percent to $86.74 at last check in the electronic session. Brent crude futures were up 1.42 percent to $109.54 on Wednesday. In ETF trading, the United States Oil Fund ETF (USO) closed up 0.99 percent at $31.78.

Precious metals also managed gains, but fell from highs seen in the wake of the FOMC release. COMEX gold futures were last up 0.19 percent to $1,712.90 and silver futures had added 1.54 percent to $33.53. The heavily traded SPDR Gold Trust ETF (GLD) closed up 0.08 percent to $165.79 after making a couple of volatile swings during the day.

Long-dated Treasurys plunged after the Fed statement. The iShares Barclays 20+ Year Treasury Bond ETF (TLT) fell 1.16 percent to close at $122.59. The yield on the 10-Year Note rose 4 basis points to 1.70 percent.

The U.S. dollar unsurprisingly finished the day lower, although not by that much. The PowerShares DB US Dollar Index Bullish ETF (UUP), which tracks the performance of the greenback versus a basket of foreign currencies, lost 0.18 percent to $21.84. The closely watched EUR/USD pair was last up 0.56 percent to $1.3081.

By Scott Rubin